Oil Price & The Stock Market

The oil price broke above $35 per bl. in 4/04. This was the first time in over twenty years that oil moved above its inflation adjusted price, and marked the end of a lengthy period of "cheap oil". Since then, the stock market has been sensitive to the near term direction of the oil price, with investors sensing that expensive oil may have detrimental economic consequences. It now appears that the oil price needs to be added to the list of economic variables, such as interest rates, that must be factored into any analysis of the stock market. After all, like the cost of money, oil is a major capital input for business, and can have a significant effect on profits and capital budgets. So too, oil like interest rates, will affect consumer confidence and purchase decisions.With oil currently rebounding again, it needs to be taken into account in gauging the short term outlook for equities, as a rising oil price may inhibit the recent rally in stocks.